Weighing the Pros and Cons of Amazon Shipping Options for Ecommerce Sellers
Amazon dominates U.S. ecommerce with 41% market share. For ecommerce companies, the opportunity and challenge of winning sales on Amazon is high stakes. From advertising and listing optimization to Amazon Market Basket Data, sellers can use any number of levers to drive revenue and loyalty on the platform. As we’ve learned in the last two years, shipping speed is also a critical driver of customer acquisition and retention. Amazon offers sellers options when it comes to fulfillment but understanding which makes the most sense for your business can be confusing. Here we share our recommendation for a winning fulfillment strategy by weighing the pros and cons of Fulfilled by Amazon (FBA), Fulfilled by Merchant (FBM) and Seller Fulfilled Prime (SFP).
Amazon Fulfillment Options Explained
Sellers essentially have two Amazon shipping options to get products to customers: give Amazon control of fulfillment or do it yourself.
1. Fulfilled by Amazon (FBA): Amazon controls storage of your products, packaging, shipping and returns.
2. Fulfilled by Merchant (FBM): By contrast to FBA, the seller owns warehousing, fulfillment and returns.
2a. Seller Fulfilled Prime (SFP): A subset of FBM but the seller gets the Amazon Prime tag and all of its requirements.
There’s a great deal of nuance to understanding each option and what business considerations to account for when calculating your ROI. We’ll dive into those pros and cons next and how that intel can inform a winning fulfillment strategy.
Pro Fulfillment Tip for Ecommerce Businesses Start with Fulfilled by Amazon (FBA) and use Fulfilled by Merchant (FBM) as your backup.
Pros and Cons of Amazon Fulfillment Options
1. Fulfilled by Amazon (FBA) is a popular choice for many sellers and for many good reasons. However, FBA has some downsides that merchants should be aware of before they set it and forget it.
Coverage: Access to Amazon’s logistical network across the U.S. and globally is an enormous benefit to sellers. For smaller businesses, this coverage opens up a world of opportunity to sell products to customers both nationally and internationally without incurring significant overhead costs.
Shipping Speed: Because of that massive coverage, Amazon can afford to offer next day and in many places same-day delivery.
Shipping Cost: For standard size products, FBA can’t be beat on price. It’s the cheapest option the majority of the time. The lighter your products, the greater the savings in shipping.
Entry Fees: FBA takes a lot of the burden off sellers but it comes with a price tag. Sellers must prepare their items for Amazon following strict and complex guidelines. Next, sellers must ship their products to Amazon — an often neglected price to pay for entry into the Amazon marketplace. These fees make it difficult for sellers to calculate a unit’s cost as you have to account for FBA preparation and inbound (to Amazon) and outbound (to customers) shipping.
Time to Market: Amazon picks up, checks in, splits and shares your products to their fulfillment centers. Your products aren’t available to sell on Amazon until that process is completed. The lead time to get into the Amazon network can mean you’re out of stock for two weeks or more. If that’s the case, and with no backup option to fulfill, Amazon can and will remove your product listing, costing you sales during that down period.
Control: Sellers give up a good deal of control with FBA. For some, it’s worth the price, but for other sellers, losing that direct contact with customers is a big disadvantage. When you don’t handle returns directly, you may miss important product insight and the chance to win that customer over at a future date. With the lead time required to get into the market, sellers also forfeit control over their inventory’s packaging and the opportunity to upsell with offers inside the box.
2. Fulfilled by Merchant (FBM) puts sellers in the driver’s seat while benefiting from the reach and scale of the Amazon marketplace.
Ready to Sell: Managed on your own, your products are always live and ready to sell immediately. There’s no lead time waiting for Amazon to receive and process your products, nor additional preparation time and shipping fees to get products into the Amazon network. This immediacy also benefits ecommerce businesses with expiration dated products. You can shift your promotion strategy to sell those items closer to expiration faster without potentially throwing products away.
Shipping Flexibility: With FBA, you have no choice in shipping costs or carriers. Although FBA will win out on price for most products, non-standard (e.g., heavier, larger) products may see greater efficiencies (i.e., cheaper) on FBM shipping. With more carrier options at your disposal, you also don’t need to have warehouses everywhere — a major advantage over Seller Fulfilled Prime (SFP).
Control: Storing and fulfilling on your own means total transparency and control over your inventory and customer experience. You communicate directly with customers via fulfillment and returns, and gain insights that you may not be privy to otherwise. Managing supply also works in your favor as you won’t lose time (and potentially your listing) waiting on Amazon to restock your products.
Amazon Prime Bias: The halo effect of the Amazon Prime tag benefits ecommerce sellers far beyond the guaranteed shipping date. Consumers trust the Prime tag and that sentiment extends to the brands that display Prime status. eMarketer forecast more than half (63.4%) of all U.S. households will use Prime. That penetration translates to increased sales, more effective advertising and better organic search on the platform.
2a. Seller Fulfilled Prime (SFP) is a type of FBM that may seem like the best of all worlds, as it combines the pros of Fulfilled by Amazon (FBA) with the Prime tag. But as with all Amazon fulfillment options, SFP also has some distinct disadvantages.
Amazon Prime Tag: What is a con for FBM is the main selling point for SFP. Whitebox data shows that Prime drives sales up to 50% more, plain and simple. Consumers trust it and equate that trust with reliability and quality, whether right or wrong.
Ready to Sell: Same as FBM.
Control: Same as FBM.
Currently Unavailable: Amazon is not accepting sellers into SFP at this time. Ecommerce businesses can sign up to join a waitlist but there’s no further information on when and if an opening will become available. Further, Amazon is in the driver’s seat and could choose to sunset the program, impacting all those who rely on the service. However, Whitebox can offer clients SFP through its own account, which has Seller Fulfilled Prime status and capabilities.
Highly Regulated: For all the Prime advantages, the program has steep requirements for sellers. Amazon controls shipping on every single order to ensure two-day delivery to customers. A seller must meet delivery speed targets, defined as “two-day or less” product page views of 55% for standard products and 30% for oversized products; while one-day shipping requires 20% for standard size and 5% or more for oversized items.
Expensive: SFP is complex operationally for ecommerce businesses and can cost far more than FBM in overhead. For example, Sellers must have coverage across the U.S. in order to meet Amazon’s SFP requirements for standard-size products. If you need to ship to the West Coast but you’re based in Baltimore, expect to pay more as Amazon controls which carriers can fulfill that delivery. In addition, sellers are required to commit to weekend delivery and pickup options. This can translate into considerably higher costs to fulfill products if Amazon requires you choose UPS Ground versus a cheaper option from USPS.
Amazon Fulfillment Strategy & Other Considerations
For many clients, Whitebox recommends leading with Fulfilled by Amazon (FBA) and using Fulfilled by Merchant (FBM) as a backup. If you’re still on the fence, consider these advantages with a two-pronged fulfillment strategy.
Amazon Fulfillment Strategy: Lead with FBA, Back Up with FBM
With FBA as your primary fulfillment option, you benefit from Amazon Prime and the halo effect it has on sales.
With FBM as backup, you’ll never be out of stock or delisted on Amazon. As soon as your FBA runs out, you can shift to FBM with the same products under a different SKU and even a slightly higher price.
Once your FBA is replenished, you’re back in business with Amazon Prime shipping and incur zero delays or lost sales thanks to FBM.
As you think through and calculate the cost-benefit to Amazon fulfillment, there are other important considerations to keep in mind. Should your FBM option be SFP? How important is closing the sale? Does capturing that sale outweigh the costs of building out national coverage with multiple facilities and potentially eating into your profits? These are moot for most businesses since SFP is closed, but if you work with a 3PL like Whitebox who has SFP, they’re very real questions to ask and answer. Whitebox’s holistic approach to advertising and fulfillment on Amazon delivers real results for clients. Ricola saw a 57% increase in its Amazon sales YOY with Whitebox. For guidance on Amazon fulfillment and more, reach out to Whitebox for a free consultation.